Wine Industry - Porter's Five Forces

1. Bargaining power of buyers………………………………………………………………………….1 2. Bargaining power of suppliers………………………………………………………………………2 3. Rivalry between existing companies………………………………………………………….…4 4. Threat of new entrants………………………………………………………..……………………….5 5. Threat of substitutes…………………………………………………………………………………….6 6. References………………………………………………...……………………...…………………………8

1. Bargaining power of buyers

The buyer’s power within the wine industry varies between different places in the world. There are for example strategic differences between Europe and the “New World”. The “New World” includes countries like the US, Australia, Chile and South Africa. In Europe there is a big competition between small private family wineries while there are in the “New World” only a few large companies that have a big market share. To give you an example of this Australia have four firms that at the moment have around 75 % of the market while in France there are around 230 000 wineries.

The power of buyers seems to be higher in Europe compared to the “New World”, in Europe the consumers have a more sophisticated taste and are more price sensitive compared to the “New World”. In Europe wine is sold through many different supermarkets which provide a wide range of different wine sorts from a lot of different private labels. This can be one of the reasons why the power of the buyers seems to be a bit higher in Europe than in for example the US. In the US they generally don’t sell wine at supermarkets, except from Wal-Mart that just introduced a private label in their wine collection. Another reason might be that the branding in the “New World” creates a wider product differentiation which seems to reduce the power of the buyers.

In general the power of the buyers within the wine industry is quite high if we talk about buyers like distributors and wholesalers. Buyers like distributors and wholesalers are probably the largest costumers for a wine company and if this is the case they will probably also gain a lot of bargaining power. If a wine label have an organization like this, few but large buyers, they will have a position that gives them less power over bargaining with their costumers because they are afraid of losing them. The costumers are just too important for them. In a country like the US or other “New World” countries like we talked about before is this very common, to have fewer but larger costumers.

If we continue to discuss about large costumers like liquor stores and restaurant we can say that they have a big bargaining power and that they are very important for the wine industry. Something that really affects the wine prices and the industry itself is the competition between those buyers. If for example the demand is higher than the supply of wine the prices for a wine bottle will go up but if it is the other way around that the demand is lower than the supply the price for a bottle of wine will fall.

There are some exceptions within Europe about the power of the buyers. For example in Sweden where it is monopoly on alcohol the bargaining power of the buyers is very low. There is only one store in Sweden that are allowed to sell strong alcohol drinks to people over 20 years old and the prices is very high. But people still buys this drinks from the store because they can’t get it in any other way. When you are 18 years old you can buy alcohol in restaurants and pubs but you are not allowed to buy it outside those places. Many people in Sweden goes to for example “border shop” in Germany to buy alcohol for a cheaper price, but there is some limitations about what you can bring back to Sweden. It is a different amount of beer, wine and hard liquor you are allowed to bring back over the border.

Except from exceptions like Sweden buyers have a quite high bargaining power within the wine industry and together with the suppliers that also have high bargaining...

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